CALGARY — Stock in Penn West Petroleum Ltd. plunged as much as $2 per share or 17 per cent to $9.63 on Wednesday after it announced sweeping changes that will reduce short-term production levels.

The stock closed at $9.74, off $1.89 or 16 per cent. It has traded between $8.82 and $13.57 in the past 52 weeks.

The former energy trust said Wednesday it is putting two joint ventures with Asian partners on the sales block as part of a plan to raise $1.5 billion to $2 billion through asset sales by the end of 2014 to reduce debt.

The company, which has been examining strategy since July 1 when former Marathon Oil Corp. executive Dave Roberts replaced Murray Nunns as president and chief executive, said it has adopted a five-year plan which will focus its development spending on just three liquids-rich resource plays.

Roberts said on a conference call with analysts Penn West is turning away from its past as a resource-rich but directionally scattered oil and gas intermediate.

“In the preceding phases of the company’s life cycle, we concentrated on resource capture and, later, on determining if new drilling and completions technology could economically revitalize the positions assembled in Penn West,” he said.

“Now, to be successful, Penn West needs to shift to an economic returns and execution-focused model.”

Penn West plans to market its 50 per cent share of the Cordova gas play of northeastern B.C. and its 55 per cent share in the Peace River thermal oilsands project.

Both deals were signed in 2010 under Nunns, the former with Japan-based Mitsubishi for $850 million and the latter with China Investment Corp. for $817 million but neither has resulted in significant production as yet.

Meanwhile, Penn West announced it has struck deals to be closed before year-end to sell assets producing a total of about 12,500 barrels of oil equivalent per day in Western Canada for $485 million, without releasing specifics or identifying buyers.

Roberts said that means the company is about one-third of the way to the lower end of its disposition target.

Analyst Dirk Lever of AltaCorp Capital said it’s not surprising that market reaction was negative, given that some buyers may have bought the stock hoping for a quick turnaround under Penn West’s new management.

Instead, the company expects production to drop from 133,700 boe/d in the quarter ended Sept. 30 (a 17 per cent shrinkage from the same period of 2012) to about 110,000 boe/d next year and fall to less than 100,000 boe/d in 2015 before gradually rebounding.

“People are looking at this and saying, ‘I’ve got to wait two years before I see any improvement?’ They’re gone,” said Lever.

He added Penn West’s dividend doesn’t offer much yield in comparison with peers and, if the company isn’t going to grow via the drillbit, its market appeal is diminished.

Gordon Tait, an analyst for BMO Capital Markets, agreed that the production forecast was underwhelming, noting that the 2014 capital budget of about $900 million won’t provide any growth.

Both analysts agreed with Penn West’s decision to sell its joint ventures, noting that the two combined are producing only 5,000 to 6,000 boe/d and will require considerable future investment to reach capacity.

On the call, Roberts avoided answering a question about whether Investment Canada guidelines would preclude China Investment Corp. from buying Penn West’s stake in the Peace River assets.

Penn West said it will continue to market its Duvernay play acreage in northwestern Alberta, along with other non-core assets, while directing most of its capital spending to the Cardium, Viking and Slave Point liquids-rich plays.

Roberts unveiled a five-year plan to become “Canada’s leading conventional liquids producer,” with 2014 a year of transition.

Penn West plans to spend about $4.7 billion through to 2018 on operated development, with the Cardium getting about half, the Slave Point absorbing $1.3 billion and the Viking receiving $620 million.

Investment in the Cardium is to grow to $800 million per year by 2018 and in the Slave Point to $450 million per year by 2018, it said.

Roberts said the plan will deliver compound annual growth rates of 12.6 per cent on oil production, 10.6 per cent on netbacks and 14.5 per cent in cash flow over the five-year period.

In August, Penn West laid off more than 300 head office and field staff, bringing cuts to total employee head count to 30 per cent since the fall of 2012. It said it had less than 1,600 full-time equivalents, down from 2,250.

On Wednesday, a company chart indicated its head office workforce has been reduced from 1,153 as of Sept. 30, 2012, to 825 on the same date this year.

Penn West reported net income of $27 million on cash flow of $293 million in third-quarter results Wednesday, versus a loss of $67 million on $344 million in cash flow in the year-earlier period.

Rick George, retired Suncor Energy Inc. president and CEO, was appointed chairman of Penn West in May and vowed to improve the company’s operational performance and lift its stagnant share price.

Comments

We encourage all readers to share their views on our articles and blog posts. We are committed to maintaining a lively but civil forum for discussion, so we ask you to avoid personal attacks, and please keep your comments relevant and respectful. If you encounter a comment that is abusive, click the "X" in the upper right corner of the comment box to report spam or abuse. We are using Facebook commenting. Visit our FAQ page for more information.

Almost Done!

Postmedia wants to improve your reading experience as well as share the best deals and promotions from our advertisers with you. The information below will be used to optimize the content and make ads across the network more relevant to you. You can always change the information you share with us by editing your profile.

By clicking "Create Account", I hearby grant permission to Postmedia to use my account information to create my account.

I also accept and agree to be bound by Postmedia's Terms and Conditions with respect to my use of the Site and I have read and understand Postmedia's Privacy Statement. I consent to the collection, use, maintenance, and disclosure of my information in accordance with the Postmedia's Privacy Policy.

Postmedia wants to improve your reading experience as well as share the best deals and promotions from our advertisers with you. The information below will be used to optimize the content and make ads across the network more relevant to you. You can always change the information you share with us by editing your profile.

By clicking "Create Account", I hearby grant permission to Postmedia to use my account information to create my account.

I also accept and agree to be bound by Postmedia's Terms and Conditions with respect to my use of the Site and I have read and understand Postmedia's Privacy Statement. I consent to the collection, use, maintenance, and disclosure of my information in accordance with the Postmedia's Privacy Policy.